The election of Reagan was a reaction to the economic ignorance of Carter and Volker that gave us stagflation of the economy with rising costs and fewer jobs. The cause was the rapid increase in energy prices from the oil embargo that affected every product manufactured or transported. Volker was the first to attempt to control the economy with monetary policy and the result was ugly increases in interest rates as he stupidly created a recession when it was not necessary. I remember assuming an FHA mortgage at 13% and thinking I got a bargain.
Reagan used the recession to vilify Democratic econ policy and unions for the price rises when Volker was simply trying to stay ahead of the cost curve by making more money available to purchase more expensive energy at the consumer level. He could have positioned the government as the broker for oil, taking the loss at the Fed instead of passing along the higher costs, but the concept of fiat money was never taught in econ classes, so everyone was still wrongly applying gold standard logic to the economy.
Reagan reinforced this by equating government’s spending to the people’s tax dollars to give them a sense of ownership for welfare and made the image of the “welfare queen” more enraging. When the people began to assume that “they” were directly paying for programs that had little oversight of cost while their personal finances were squeezed they naturally pushed back against the beneficiaries of those programs that they presumed were mostly people of color, setting the civil rights movement back by decades and opening the floodgates for tax cuts.
With a milquetoast campaigner in Carter facing a go for the throat Republican willing to leverage any misery in the economy the result was predictable. Reagan managed to turn that misery into a shift in perspective 180 degrees from the New Deal economics after we rescinded the convertibility of currency to gold in ’34 to give FDR policy room to spend when no one had money for taxes and to wage war on the Nazis.
The Democratic party found it difficult to counter this as it resonated with the way the people, as users of the currency, had to go about their own household, business, and state/local budgeting, so they didn’t really try. They made some references to the benefits following the New Deal as America enjoyed its best decades, but never really understood the econ themselves, so they pushed the class envy as hard as the GOP, but in the opposite direction. The GOP simply had to remind workers that it was their employers the Democrats wanted to tax to “fund” programs to gain middle-class support for shrinking the federal government.
Crippling the ability of government to tax and regulate business has been the holy grail of GOP politics since FDR, so the sequence of events from the oil embargo to the present day of global trade and wage suppression could not have been better timed for them. Conservative economists and pundits wasted no time in reviving the gold standard models, torturing numbers and results where necessary, to avoid American thinking ever adjusting properly to the power of the purse gained from a fiat currency that is only limited by the availability of resources and labor, not “revenue”.
Without pushback from Dems, who quickly adapted to the loss of union financial support by courting deep pockets in banking and finance, the GOP has been hugely successful in manipulating the economy to the benefit of the donors to both major parties. This gave rise to the “neoliberal” wing of the DNC now in a fierce battle with Bernie and other progressives for party control. Both the GOP and establishment Dems may find Bernie a formidable force after allowing a loose cannon like Trump too much latitude in the economy that is hurting traditional GOP supporters with no visible returns.
The voters are no longer blind to the results of lavishing tax cuts on the wealthy while using social benefit cuts to “pay for” them and Bernie’s message of making them pay more is resonating after decades of flat/falling wages and the rising cost of living. His success at fundraising without corporate support is very worrying to the establishment Democrats and the GOP so he is facing opposition on both fronts. He fully understands the economics of a fiat currency economy that cannot be funded with taxes or borrowing, but wisely doesn’t use his campaign to teach econ when the targets of his ire and rhetoric should be taxed much higher anyway, just because they use their extreme wealth to subvert our democracy and keep labor subservient to capitalists.
Understanding that deficit spending is “required” for any net importer, but especially one as dependent upon growth and dedicated to extreme wealth accumulation as the US is key to Bernie’s ability to offer programs beneficial to the middle-class and poor. Deficit spending is the only source of dollars that can store value in commerce, net retire private debt, or be net saved. Cutting deficit spending is always detrimental to the general economy unless inflation is extreme. It is more accurate to state that deficit spending “funds” borrowing than the reverse as Treasury bonds are no longer a funding operation.
Without a gold reserve to defend our “national debt” is nothing more than an accurate record of money created by Congress via its Constitutional authority that hasn’t yet been deleted to pay a federal tax obligation. Playing on the general economic ignorance of voters and their knee jerk reaction to the word “debt” has been a key element in America’s extreme inequality that even Clinton and Obama forwarded. Fear of the debt is also what has kept America stuck with antiquated infrastructure and social programs as other, far less affluent, countries pass us up in critical metrics to remain globally competitive.
